AP insists it won’t repeal law on MFIs

Andhra Pradesh insists that it won’t change a stringent new law that has brought the activities of microfinance institutions (MFIs) to a virtual halt in the state that accounts for one-fourth of the Rs.20,000 crore industry.  This runs counter to the conclusion of a panel set up by the Reserve Bank of India (RBI) that the state law “will not survive” if the recommendations it has made are accepted. “That does not change our stand,” Reddy Subramaniam, principal secretary of the Andhra Pradesh government, said in a phone interview. “We are fully aware of the situation.” He was asked whether the panel recommendations covering contentious issues such as high interest rates and over-lending would suffice to replace the state Act. RBI is currently in the process of studying the proposals made by the Y.H. Malegam panel on MFIs. Top central bank executives, including Deputy Governor K.C. Chakrabarty, are likely to meet Andhra Pradesh government officials and senior bureaucrats of some other states on 22 February to discuss the effects of dual regulation, according to two persons familiar with the development. Subramaniam confirmed that RBI has called a meeting on 22 February for feedback from the Andhra Pradesh government on the Malegam committee report. The banking regulator may seek a consensus on MFI regulations by asking states not to promulgate separate laws on the sector, said one of the persons cited above. “This (states having separate regulations) can create huge difficulties for MFIs operating in multiple states,” said the person, who heads a Hyderabad-based MFI. Nearly 80% of the industry is controlled by MFIs that are incorporated as non-banking financial companies (NBFCs). A proposed Central microfinance Bill, yet to be tabled in Parliament, envisages the National Bank for Agriculture and Rural Development as the regulator for smaller MFIs.